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ENDATIONS OF THE PRESIDENT

TUESDAY, SEPTEMBER 15, 1970

HOUSE OF REPRESENTATIVES,
COMMITTEE ON WAYS AND MEANS,

Washington, D.C. The committee met at 10 a.m., pursuant to notice, in the committee room, Longworth Building, Hon. Al Ullman, presiding.

Mr. ULLMAN. The committee will be in order. Mr. MacKethan, we welcome you before the committee. Would you please identify yourself and your colleagues for the record and then we will be glad to recognize you. STATEMENT OF EDWIN R. MacKETHAN, PRESIDENT, TRUST DIVI.

SION, AMERICAN BANKERS ASSOCIATION; ACCOMPANIED BY
AUSTIN FLEMING, NORTHERN TRUST CO. OF CHICAGO; WILLIAM
K. STEVENS, FIRST NATIONAL BANK OF CHICAGO; AND RICHARD
B. COVEY, SPECIAL COUNSEL TO THE ASSOCIATION
Mr. MACKETHAN. Thank you, Mr. Chairman,

Mr. Chairman, and members of the committee, my name is Edwin R. MacKethan. I am executive vice president of the Virginia National Bank and am president of the Trust Division of the American Bankers Association. I am accompanied by Austin Fleming, of the Northern Trust Co. of Chicago, William K. Stevens of the First National Bank of Chicago and Richard B. Covey, a lawyer with the firm of Carter, Ledyard & Milburn of New York City, who is acting as special counsel for the association with regard to various tax matters of concern to our members.

I appear before your committee to testify on behalf of the American Bankers Association with respect to the administration proposal to accelerate the payment of gift and estate taxes and to summarize the position of the association, which is contained in our written statement that has already been made available.

I request permission for the appendixes to be printed in full in the record.

The administration has shifted from its original proposal for accelerating the payment of estate tax and now supports three points of an alternative method of acceleration suggested by our association. These points are to change the alternate valuation date from 1 year after date of death to 6 months from date of death, to change the time for filing the estate tax return and paying the estate tax from 15 months after date of death to 9 months after date of death and to change the

TAX RECOMMENDATIONS OF THE PRESIDENT

TUESDAY, SEPTEMBER 15, 1970

HOUSE OF REPRESENTATIVES,
COMMITTEE ON WAYS AND MEANS,

Washington, D.C. The committee met at 10 a.m., pursuant to notice, in the committee room, Longworth Building, Hon. Al Ullman, presiding.

Mr. ULLMAN. The committee will be in order.

Mr. MacKethan, we welcome you before the committee. Would you please identify yourself and your colleagues for the record and then we will be glad to recognize you.

STATEMENT OF EDWIN R. MacKETHAN, PRESIDENT, TRUST DIVI.

SION, AMERICAN BANKERS ASSOCIATION; ACCOMPANIED BY
AUSTIN FLEMING, NORTHERN TRUST CO. OF CHICAGO; WILLIAM
K. STEVENS, FIRST NATIONAL BANK OF CHICAGO; AND RICHARD
B. COVEY, SPECIAL COUNSEL TO THE ASSOCIATION
Mr. MACKETHAN. Thank you, Mr. Chairman.

Mr. Chairman, and members of the committee, my name is Edwin R. MacKethan. I am executive vice president of the Virginia National Bank and am president of the Trust Division of the American Bankers Association. I am accompanied by Austin Fleming, of the Northern Trust Co. of Chicago, William K. Stevens of the First National Bank of Chicago and Richard B. Covey, a lawyer with the firm of Carter, Ledyard & Milburn of New York City, who is acting as special counsel for the association with regard to various tax matters of concern to our members.

I appear before your committee to testify on behalf of the American Bankers Association with respect to the administration proposal to accelerate the payment of gift and estate taxes and to summarize the position of the association, which is contained in our written statement that has already been made available.

I request permission for the appendixes to be printed in full in the record.

The administration has shifted from its original proposal for accelerating the payment of estate tax and now supports three points of an alternative method of acceleration suggested by our association. These points are to change the alternate valuation date from 1 year after date of death to 6 months from date of death, to change the time for filing the estate tax return and paying the estate tax from 15 months after date of death to 9 months after date of death and to change the where even the current 1 year period may not be satisfactory, the auditing agent will do what he has done in the past-request that the section 2204 letter be temporarily withdrawn.

The administration's new proposal does propose that section 2204 be modified to permit a fiduciary other than an executor to secure a discharge from personal liability for estate tax. However, it fails to deal with the decedent's liabilities for income tax and gift tax. We have discussed this omission informally with represenatives of the Treasury and been advised that extension of the discharge to income tax and to gift tax would present “administrative problems" for the Internal Revenue Service because audits of three types of returns are involved. We are unimpressed with the justification. The discharge provision should be expanded to coved income tax and gift tax as well as estate tax.

The new proposal also fails to change the 1 year rule to 9 months. We would point out that absent such a change there is nothing in the administration draft bill that contains a specific Congressional mandate for the spending up in the time for auditing Federal estate tax returns. We believe it is essential that if acceleration of the payment of estate tax is enacted the legislation should contain such a mandate and we suggest that this mandate be expressed by a shortening of the period of time for discharge in section 2204. There can be no disagreement with the statement that the payment of the estate tax within 9 months after death rather than within 15 months after death is in some cases going to create a hardship for the estate. This fact was recognized in the original administration proposal by the net liquid asset limita. tion on the amount of the estimated estate tax that would have to be paid. Any acceleration proposal that did not specifically recognize the hardship problem and liberalize the rules with respect to securing extensions of time within which to pay the tax would be deficient, as is the administration's current draft bill which says nohing about extensions. The hardship problem may be minimized by making the clarification I have already referred to with respect to securing extensions of time to pay the estate tax. It is to amend section 6161(a) (2) to eliminate the word "undue" and to revise section 20.6161-1 of the Treasury Regulations. The revision that we desire is discussed in detail in our written statement.

Finally, I would like to call the committee's particular attention to the discussion in our written statement of two technical defects in the administration's draft bill. Both of these relate to the change in the holding period rule. Proposed section 1223 (11) of the draft bill should be revised to eliminate the distinction made between estates involving community property and other estates which limits the change in the holding period rule to the decedent spouse's share of community property. Also, if acceleration is to be made retroactive in the sense that it applies to estates of decedents dying prior to the date of enactment of the legislation, the change in the holding period rule should also be made retroactive. While there may be some dispute as to the extent of the retroactivity, this change should clearly be applied to sales made after the date of enactment.

(The appendixes referred to follow :)

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